Shop on 18th Street Grows Into a Giant

Like many veterans, Charles Lazarus returned home after World War II looking to build a family.

And he knew that thousands of other returning servicemen had the same idea, so with several thousand dollars he had saved, Lazarus opened a children's furniture store on 18th Street NW in 1948.

By 1950, Lazarus realized that the market for high chairs and play pens was limited; after all, how often do families replace cribs?

So he broke down a wall of the furniture store and opened a toy store he called Childrens' Supermart.

Through the 1950s, Lazarus built what became Toys 'R' Us into a very successful local business. But still he was not satisfied; after a trying buy-out by Interstate Stores Inc. -- which subsequently went bankrupt -- Toys 'R' Us kept above water and went national.

Today there are 144 Toys 'R' Us locations throughout the country -- seven in the Washington area -- with sales this year likely to climb nearly 25 percent, past $1 billion. Lazarus lives along posh Fifth Avenue in Manhattan and owns 1.6 million shares of its stock -- which was selling last week for close to $50 a share -- worth $75 million.

Still he is not satisfied. Although he plans to move Toys 'R' Us into Canada and ultimately overseas, Lazarus now wants to go into a market even bigger than the $9 billion toy business -- children's clothes, said to be an $11 billion field.

Nobody has ever sold toys on a nationwide basis the way Charles Lazarus peddles toys. And nobody has tried to clothe the nation's youth in the same methodical, computer-driven and highly profitable style.

While still unnamed and in the planning stages, the clothing operation is likely to resemble the Toys 'R' Us approach. The stores will sell clothes for children from infancy to age 12 and the merchandise will focus on nationally advertised, top-of-the-line, designer-style goods.

"People want Izod for their kids, but they want to pay less than department store prices," he said in an interview last week. "We don't think any store covers this kind of selection and Penney's is the only major force in the entire market."

Toys 'R' Us stores already carries a limited line of childrens' clothes and the company will launch the new project with several pilot stores in the New York area. "If it works, we'll go everywhere in America with it," he said, with his typical entrepreneurial bravado. "We can go all over the world with it."

All was not so rosy as recently as the mid-1970s: Toys 'R' Us, which adopted the short name in 1956 with its inverted 'R', was bought by Interstate Stores for $6 million in 1967, a time when Lazarus had only four Washington-area stores. But Interstate filed for bankruptcy seven years later as Toys continued to grow, and in 1978 Toys 'R' Us emerged from that bankruptcy under a court-approved reorganization plan.

So far, the Lazarus warehouse strategy, which permits management to monitor via computer up-to-the-minute sales and inventory figures, has worked well. "I think Toys 'R' Us is a unique operation -- the only proprietary merchandise company that rivals IBM as revolutionary in concept," said Morgan Stanley & Co. retail analyst Walter Loeb. "Their superb controls and information systems are unrivaled in the industry."

It also allows the stores, all of which are virtually identical at about 45,000 square feet, to accumulate nearly perfect information about the hottest Christmas season products. The company makes almost all its money in December and more than half its sales are in November and December.

From his desk, Lazarus, can determine how many of each product is on hand at each of his stores. It is a system designed for the rapidly changing toy business and it has worked so well that retailers, like department store owners, have clearly ceded much of their business to Toys 'R' Us.

While toy departments shrink to boutique-style corners in major department stores, Toys 'R' Us keeps entering new markets -- such as Florida this year -- with increasing success. It has raised its national market share to 9 percent from 6 percent just two years ago. With the product mix changing so rapidly, Lazarus said, "it is risky" for department stores to carry commodities like toys that specialty stores can sell cheaper.

Not only has the chain benefited from other retailers' growing lack of interest in toys, but also it is a major beneficiary of the home computer-video game boom. In fact, 19 percent of its $189.6 million sales for the quarter ending with October came from electronic games, up from 10 percent for the same quarter last year. As evidence of how quickly things change in toys, Lazarus said that a year ago company management did not expect to be selling any computers this Christmas.

The electronic-games business, in his view, is not just a passing fancy, a position that makes Lazarus a popular figure at places like Warner Communications Inc., parent company for Atari, the field's leader. "We strongly believe that electronic games are not a fad; it is the way America is playing games now and will increasingly do so in the future," he told a retail seminar in New York City recently.

The retail profit in the electronic games bonanza is not in the hardware, which Lazarus, like most other retailers, sells for almost no markup. What drives the retail end of that business is the software, the games and programs that plug into the home system. Even if the traditional board-game area continues to collapse, the sales and mark-up for the computer software is so strong that Lazarus says the changing product mix isn't harming his operations at all.

Furthermore, the home electronics boom seems to be bringing new adult clients into the store. "There is an increasingly fine line between where adult begins and child ends," Lazarus said.

With a heavy emphasis on electronics -- home video is virtually the first thing one sees this season at Toys 'R' Us -- Lazarus is one of the few retailers expressing enthusiasm about the 1982 holiday season.

"We think there is less competition this year and no one has bought the inventory we've bought," he said. "Besides, our experience is that people will pass on buying a new suit or dress to make Christmas for their children."